Yes, you should strongly consider using your inheritance to pay off high-interest debt, such as credit cards and personal loans. This is generally a financially sound decision because eliminating debt provides a guaranteed return by saving on interest costs, which often significantly outweighs potential investment returns.
Pay Off Debt
No matter how big or small of an inheritance you receive, it's hard to go wrong by using a portion of it to pay off high-interest debt. Start with your most expensive debt—often unpaid credit card balances—and then look at other forms of debt, such as lines of credit, car loans, student loans or mortgages.
What should you not do with inheritance money?
The key is to balance short-term needs with long-term wealth protection so your inheritance supports you — and potentially future generations.
If a person dies and one of their beneficiaries is bankrupt at that time, the bankrupt beneficiary's inheritance is after acquired property that vests in their bankrupt estate. The inheritance is not protected and would be used to satisfy the beneficiary's creditors.
DEBT COLLECTORS CANNOT:
What to do with an inheritance
Inheriting money and assets
There are no inheritance or estate taxes in Australia. However, you may have tax obligations for the assets you inherit: capital gains tax may apply if you dispose of an asset inherited from a deceased estate.
Failing to keep your Will up to date
For example, getting married, buying property, having children, starting a business and getting divorced are all factors that could affect any Will you might have previously written. Some of these life changes will have a more significant effect on your Will than others.
If you owe money, creditors can usually go after assets in your name. That includes inherited property or cash—unless it's protected by legal barriers. For example, if you inherit a house and it's titled solely in your name, that home could potentially be targeted in a lawsuit or collection action.
7 Common Inheritance Mistakes to Avoid
The 7 year rule
No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.
Making the Most of Your Lump Sum Payment
How Does the Debt Snowball Method Work?
What Do I Do With a Cash Inheritance?
For those nearing retirement age, though, Orman offers different advice: If you're in your forever home, pay off your mortgage by the time you retire. Considering that baby boomers own 38% of America's housing stock—and more than half plan to never sell—is an important caveat.
$500,000 is a big inheritance. It could have a significant impact on your financial situation, depending on how it is managed and utilized. As you can see here, there are many complex, moving parts involving several financial disciplines.
Tax-free lump sum payments (where the individual dies under 75) must be made within two years of the scheme administrator being notified of the death of the individual. Any lump sum payments made after the two-year period will be taxed at the recipient's marginal rate of income tax.
If you already have some legal experience, you might see how an asset protection trust is excellent for protecting assets from litigation and creditors. By removing ownership of the valuable assets in question away from you and your immediate family members, you make those assets practically untouchable…
In Australia, there are no inheritance taxes payable. There are no capital gains tax payable on a transfer of assets from the deceased to the estate and finally to the beneficiaries.
Every individual has a basic Inheritance Tax (IHT) threshold of £325,000, known as the Nil Rate Band. Assets below this value generally pass to beneficiaries free of tax. If the estate is worth more than that, IHT at 40% usually applies on the excess, unless exemptions or reliefs reduce the amount due.
In Australia, you can give as much money as you'd like to someone tax-free — there's no specific 'gift tax' for either the giver or the recipient. However, gifting certain assets (like property or shares) can trigger CGT.
There's no perfect age that fits every family. Some parents choose age 25; others wait until 30 or 35. Some divide the inheritance in stages—half at 25, the rest at 35. What matters most is your child's maturity and your confidence in their financial judgment.
You can deposit a large cash inheritance into a savings account, either by check or by wire transfer to your bank. While the deposit itself is usually straightforward, deciding what to do with the money afterward often requires more thought.
What is the best thing to do with a cash inheritance?